Chartmetric: Striking a New Chord

Record Breaking DSPs
Music is becoming increasingly accessible, with the rise of digital streaming platforms (DSPs) providing easy and immediate access to a large variety of content, eliminating the need for physical distribution. As a result, streaming has become the most popular method of music consumption, commanding an 80-per-cent market share of total music industry revenues. Many popular young artists, such as Billie Eilish and Lil Nas X, have relied on DSPs early on in their careers to build up fan bases prior to the support of traditional record labels. Leading DSPs like Spotify, Apple Music, Deezer, and Pandora have driven this global industry shift, making music more democratic than ever; the power is now in the hands of the consumers and the artists.

Signing the Deal
The three major record labels—Universal Music Group, Sony Music Entertainment, and Warner Music Group—provide value to artists in the form of comprehensive marketing management, extensive funding, industry expertise, and their distribution relationships. In exchange for their services they receive hefty royalty payments and, in some cases, ownership of the rights to all content produced by the artist. Major record labels therefore control a disproportionate share of industry revenues, comprising 70 per cent of 2018 market share.

Before the advent of DSPs, signing with record labels was the only way to effectively gain traction in the music industry, consequently shifting bargaining power away from artists. For example, Spotify typically pays a record label around 52 per cent of the revenue generated by each stream of a given song. The label, in turn, pays the artist a measly royalty of 15 to 50 per cent of its cut. As a result, musicians collectively only made 12 per cent of the $43 billion generated by the music industry last year due to high royalty payments.

Due to the decreased barriers of entry attributed to the advent of DSPs, the need for record labels has drastically decreased. Artists without record labels grew nearly four times as fast as the total music industry, generating $0.6 billion in revenue in 2018. This has resulted in increased competition between major and independent record labels as they race to discover and retain talent. Consequently, industry players are looking to develop competitive advantages by shifting towards data-centric decision making. For example, Apple recently acquired Platoon, a company that uses data analytics to produce, distribute, and market for artists. Similarly, Spotify acquired Seed Scientific, a data science consulting firm in 2015. Additionally, Universal Music recently acquired Ingrooves Music Group, a global distribution, technology, and marketing company that provides data driven solutions for strategic growth of independent artists and labels. The use of data analytics to drive strategic decisions in the music industry is crucial for these players to make the most efficient use of their resources and generate maximum return.

A Major Opportunity
This industry shift has left a large segment of the market, namely independent record labels, in a difficult situation. Compared to major record labels, independents have limited resources, meaning that every dollar needs to be strategically spent. Without the resources to acquire analytics companies like their major competitors, they must look for other ways to make data-driven strategic decisions. The market opportunity lies in providing an affordable way for independents to make effective, data-driven decisions on how to acquire and position artists to compete with the majors.

Chartmetric
Founded in 2015, Chartmetric has raised $1 million in funding and has grown to 20 employees. For a subscription fee, Chartmetric aggregates data on artists, songs, and playlists across all major social media, streaming, and music-oriented websites. Subscribers can use the platform to filter and visualize this data, making the service valuable to a wide range of stakeholders within the industry, such as major record labels, independents, digital distributors, and branding agencies. Competitive advantages stem from the customization inherent to Chartmetric’s platform, where the data can be filtered according to user-set parameters to accomplish different objectives.

However, as it stands, the large quantities of data derived by Chartmetric’s algorithms can be difficult to interpret, especially for independent labels without dedicated data science departments. For example, Chartmetric’s Artist Playlists function shows a comprehensive view of all playlists a song has been added to across all DSPs. This data can appear convoluted and be difficult to make an actionable decision from. The user is left with questions such as whether or not they should cater their next album towards a certain genre or tour with certain artists. A solution is needed to help users navigate and better make sense of the extensive data provided.

Composing a New Solution
Chartmetric should establish an internal consulting arm targeted at the independent sector, specifically small-scale independent record labels. This will allow them to focus on creating value through combining industry expertise and data capabilities. Chartmetric should recruit experienced music consultants who will collaborate with data scientists to navigate through copious amounts of data in order to make meaningful recommendations, allowing them to emulate the benefits of major record label management for independent clients. These professionals should be assigned a roster of clients to consult and build working relationships. As the number of consulting clients grow, Chartmetric should expand their consulting arm accordingly.

This new consulting arm will allow Chartmetric to differentiate itself among competitors by leveraging the expertise of music consultants and their extensive data capabilities. This premium service will generate additional revenues for Chartmetric as well as increase platform retention, as lasting consultant-client relationships are developed. Chartmetric can upsell their subscription services by offering hourly consulting packages to clients based on their individual needs, with no long-term contracts to ensure financial flexibility. Value will be created through release Artists and Repertoire (A&R) support, optimization, and marketing.

A&R
Independent record labels lack the search and tracking capabilities of major record labels, many of whom have established specific departments solely focused on talent acquisition. Music analytics companies including Chartmetric already provide an A&R service to filter through large amounts of data to identify “up-and-comers” based on set user parameters. However, at this point, this simply serves as an aid to A&R managers based on fan engagement without specific actionable items. Chartmetric consultants can provide more definitive value by providing recommendations on the lifetime value of artists based on target audience demographics and engagement to predict the financial viability of signing the artist. This can help determine the most effective way to spend investment dollars. Furthermore, this information and analysis can be used to predict when an artist is at risk of facing a downturn in popularity so that independent record labels can better strategize to maximize an artist’s lifetime value.

Release Optimization
Chartmetric’s consultants should make data-driven recommendations about optimal content release strategies, such as timing, geographical targets, and even genre of music. For example, Chartmetric’s Cities tool provides artists with insights into consumption habits in specific regions around the world. As it stands, this offers value for labels to better understand artists’ consumer geographic but lacks recommendations on how to act on this information. Using this data, consultants can help to optimize tour routes and publicity events to accommodate artist schedules based on fan engagement.

Marketing
One of the main value-adds from major record labels is extensive strategic marketing and brand management. Independents strive to provide the same support with less resources. Chartmetric consultants can use aggregated data and their own industry expertise to tailor marketing strategies to specific labels. For example, recommendations can be made on what merchandise an independent should sell based on social media interactions. Independents can leverage this expertise to optimize their marketing dollars. This will provide significant value for Chartmetric given the constant marketing needs of independent record labels and should lead to long-term contractual engagements.

Risk and Mitigation
A large volume of clients is needed to make a material difference in growth and profitability. With each client contributing a small portion of revenues, it is crucial for Chartmetric to maintain positive working relationships with independents to retain a group of loyal customers. Chartmetric should focus on providing tangible value by tracking the return on investment for each of their recommendations to prove their material benefit to clients.

Closing Note
The use of data-driven decision making is crucial in the increasingly competitive music industry. The ability to combine data and industry expertise could be the difference between a viral superstar and a starving artist. With the rise of the independent segment, Chartmetric’s internal consulting arm can help position the company as the go-to resource for efficient, effective recommendations.

Ivey Business Review is written, designed, and managed by undergraduate students at the Ivey Business School and is the only publication of its kind in the country. IBR publishes two issues annually in December and April with content created exclusively by students and maintains an active blog, curated by the IBR Editorial Board, with contributions from students and young alumni.